TaxTMI 
TaxTMI 
2013 (7) TMI 933
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....24.10.2011. 2. First we will take up ITA No. 1868/Hyd/2011 by the assessee. The first ground in this appeal is that the Asst./ Deputy Director of Income-tax (International Taxation)-II does not have jurisdiction to complete assessment in the hands of the assessee. Brief facts relating to this issue, as narrated in the assessment order, are that the assessee company M/s. Platex Limited (for short Platex) is a company incorporated under the laws of Mauritius, with its registered and corporate office located at 10 Frere Felix de Valois Street. Port Louis, Mauritius and the present address being Rogers House 5, President John Kennedy Street, Port Louis, Mauritius 99999. The company is engaged in the business of providing financial services. The assessee company filed its return of income voluntarily for the A.Y. 2008-09 through e-filing on 7.07.2009 admitting net loss of ₹ 4,92,65,714 with PAN AAECP6200E. As the PAN is owned by Deputy Director of Income Tax (International Taxation), Circle-1(1), New Delhi, the return was processed u/s 143(1) of Income-tax Act, 1961 by the DDIT (International Taxation), New Delhi on 12.10.2010. The case has been selected for scrutiny through CASS....
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....the interest payable on loan taken for subscribing the debenture. Thus the assessee claimed a net loss of ₹ 4,92,65,714. The back ground fact of this case is related to earning of interest income by the foreign company Platex, Mauritius on its investment made in the debentures issued by an Indian company M/s. PVPVPL. M/s. M/s. PVPVPL had issued 88,644 fully convertible debentures (FCDs) of ₹ 1,00,000 each in 4 tranches as per 'subscription agreement(s)' dated 11th January, 2007; 21st February, 2007, 5th September, 2007 and 14th September, 2007 to Platex Ltd. These debentures bear interest @ 14.5% per annum on their principal amount, from and including the issue date up to the conversion date, which are required to be paid semi-annually on 15th June/15th December. Tranches Date of subscription Amount (in Rs.) First 16.01.2007 132,89,00,000 Second 22.03.2007 375,83,00,000 Third & Fourth 14.09.2007 377,72,00,000 Total 886,44,00,000 6. As per 'subscription agreement(s)' and the terms and conditions of the debentures, the PVP Ventures Ltd. (formerly PVP Ventures (P) Ltd.). is required to pay interest semi-annually on 15th June & 15th December @....
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....a to a resident of Mauritius (Platex Ltd.) and such interest would be taxable as per the provisions of Indian Income-tax Act. In view of the above, the Assessing Officer observed that the rate applicable on the interest income in the hands of Platex Limited shall be twenty per cent plus applicable surcharge and education cess. 9. During the course of the assessment proceedings in this case, a detailed questionnaire has been issued to the assessee by ADIT (International Taxation), Circle-2(1), New Delhi on 12.10.2010 seeking information about the foreign company assessee. However, the assessee did not provide point wise reply to the queries made by the Assessing Officer but responded to the notices by questioning the jurisdiction and to drop the assessment proceeding. Later upon transfer of the case to Hyderabad, on 23.11.2010, the DDIT (International Taxation)-II, Hyderabad issued another questionnaire responding to the each issue/concern raised by the assessee in its earlier letters to the Department and sought reply from the assessee as to why the total interest accrued for the FY relevant to the AY 2008-09 should not be taken as ₹ 103,69,30,339 by disallowing the claim th....
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.... a loss of ₹ 4,92,65,714 ..." However, it was noticed that you have filed the return of income for the Asst. Year 2008-09 through e-filing on 07-07-2009 vide acknowledgment number 71238450070709 with the PAN AAECP6200E. It is also noticed that you have declared loss of ₹ 4,92,65,714 and claimed TDS of ₹ 2,70,73,097 in the return of Income filed for the AY 2008-09 which are the same figures mentioned in your letter. You are therefore requested to clarify as to how you have stated that you have not filed the return of income when the return was actually filed on 07.07.2009. In your letter dated 29.10.2010 it was stated that "In connection with the above notice. we wish to submit that you have directed the assessee to provide various details for the above mentioned assessment year. We wish to draw your attention to our letter dated October 4, 2010 wherein we have provided details of the assessment already completed in Hyderabad in respect of the same income of the assessee. The assessment of the assessee has already been completed in the hands of the representative assessee (PVP Ventures Limited) for the A.Y. 2008-09 by the ADIT (International Taxation)-II....
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....Taxation New Delhi (copy enclosed for ready reference) 2) Hard copy of the return of income filed for the A.Y 2008-09, along with enclosures. Balance Sheet and P&L A/c, with annexures audit reports etc. 3) Complete details and nature of expenditure claimed with supporting evidence and justification with regard to the admissibility of claim of the expenditure as per the provisions of the Income Tax Act. 4) It is seen that you have shown the interest receipts on debentures at ₹ 54,14,61,942/- However, it is noticed during the assessment proceedings in the hands of Representative assessee (PVP Ventures) that the total interest accrued for the FY relevant to the Assessment Year 2008-09 has been taken at ₹ 103,69,30,339/- by disallowing the claim that the interest amount of ₹ 49,54.68,397 has been waived for the detailed reasons mentioned in the assessment order. In view of the above you are requested to explain as to why the total interest accrued in India should not be taken at ₹ 10)3,69,30,339 and assessment completed for the detailed reasons mentioned in the assessment order in the hands of the representative assessee as admittedly referred by you. 5) Sin....
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....pany from Delhi to Hyderabad. With regard to the above it is to be stated that you have filed a letter dated 10.11.2010 before the ADIT, Circle-2(1), International Taxation, New Delhi stating "In furtherance to our earlier submissions dated October 29, 2010 in connection with the above proceedings, we wish to reiterate the fact that Platex's only source of income in India for the Previous Year relevant to the Assessment Year 2008- 09 is the interest income on the debentures from the erstwhile PVP ventures Private Limited, the company which was registered and situated in Hyderabad in the state of Andhra Pradesh. Platex had no other source of income in any other place in India and has no place of business in India." From the above, it is evident that your source of income accruing or arising or deemed to be accruing or arising in Hyderabad. As such, the jurisdiction over the case vests with the Deputy Director of Income Tax-II (International Taxation), Hyderabad. In view of the above the case has been transferred from Delhi to Hyderabad. It was also stated that "the alleged income if the Company has already been assessed in the hands of PVP Ventures Limited in....
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....er proceeding in respect to the same income. This argument is not correct. The claim of refund of TDS made through the return of income filed cannot be considered without initiating any proceedings. Once the proceedings are initiated, the income/loss admitted and the claim of refund has to be examined and orders are to be passed. In view of the above, the contention raised by you is not based on facts and is liable to be rejected. With regard to the taxability of the income accrued to the foreign company Platex Ltd., you are arguing that M/s. PVP Ventures Ltd., should not be treated us an agent of Platex Ltd u/s 163 of the IT Act and at the same time you are arguing that the income should not be assessed in the hands of Platex Ltd. Your contention that the said return has been filed by PVP Ventures in the representative capacity is not based on facts. It can be seen that no return has been filed by the representative assessee in response to the notice u/s. 148 of the IT Act and hence the assessment has been completed u/s 144 of the IT Act. Even before the appellate authorities it was no where mentioned that the representative assessee has filed its return. From the above it is evi....
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.... for compliance." 12. In response to the above letters of the AO, the assessee company filed its replies on 14.12.2010 and later on 20.12.2010. The replies of the assessee including certain objections raised by the assessee in its responses before the Assessing Officer are discussed here under: (a) With reference to the assessee's submission dated 14.12.2010, the assessee in its reply has given point-wise response to the detailed questionnaire of the Dept. dated 12-10-2010. In this letter dated 14.12.2010 the assessee again stated to have reserved its rights to contend the validity of proceedings/ jurisdiction. During the course of hearing, the AR on being asked to explain if the assessee has doubted the jurisdiction of this office and if so for what reason, he could not give any reasons or arguments if the jurisdiction of this office is invalid. In fact the assessee has not challenged the jurisdiction of this office during the entire course of assessment proceeding in Hyderabad nor it has spelt out any reason, on being asked specifically, challenging the jurisdiction during the course of hearing of the AR. Similarly. during the course of hearing on 14-12-2010, the AR wa....
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.... representative assessee PVP Ventures Ltd., for the A.Y. 2008-09 by ADIT (International Taxation)-II, Hyderabad on 06.07.2009. The assessee made its request before ADIT, New Delhi despite the fact that the representative assessee of Platex Ltd., has challenged the validity of the very order of appointment of representative assessee to PVP Ventures Ltd., u/s 163 of the IT Act for the AY 2007-08 and 2008-09 before the appellate authority. Consequently, based on the objections of the assessee on the jurisdiction issue as per sec. 120 of the IT Act and the notification of the CBDT dated 28th September, 2007 this case has been transferred to DDIT (International Taxation)-II, Hyderabad. 14. According to the Assessing Officer, in view of the facts narrated by the assessee himself and also due to the fact that the chargeable income to Platex has been paid by erstwhile PVP Ventures Pvt. Ltd located in Hyderabad, and thus the source of income of the assessee is situated at Hyderabad, the jurisdiction of the case vests with DDIT (International Taxation)-II, Hyderabad, accordingly, notice dated 10.12.2010 was issued by the DDIT (International Taxation)-II to the assessee after the receipt of ....
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....n), Hyderabad, the jurisdiction of a non resident company which is stated to belong to the place where the source of income exists, it cannot be said that the revenue authorities at Hyderabad have jurisdiction over the assessee since, the payer of interest namely PVP Ventures Pvt. Ltd., had shifted its registered office to Chennai and also had merged with SSI Ltd by an order of the Madras High Court and thereafter had its name changed as PVP Ventures Ltd with registered office at Chennai. Even assuming that the authorities where the source belongs have jurisdiction, the jurisdiction can vest if at all only at Chennai and not at Hyderabad. 18. The learned DR submitted that as per notification dated 31.10.2007 bearing No. Addl. DIT (IT)/Hyd/Juris/2007-08 the notice was issued to the assessee and order was passed u/s. 163 as well as 143(3)/144 of the IT Act, 1961. According to the DR the said notification bestows the jurisdiction over the nonresident foreign company having any source of income originating from the territorial jurisdiction of the ADIT (International Taxation)-II, Hyderabad to the latter. The jurisdictional order dated 31.10.2007 was relevant when the order u/s. 163 wa....
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....in reply to notice issue dated 12.12.2010 u/s. 142(1) of the Act issued by Asst. Director of Income-tax, Circle-2(1), International Taxation, New Delhi. It is further submitted that the assessee on its own took certificate for lower deduction of tax u/s. 195 from the Assessing Officer at Hyderabad. According to the DR, the argument of the assessee that no order u/s. 127 was passed before transfer of the case from Delhi to Hyderabad, is untenable. It is also submitted that for every wrong filing of return in incorrect jurisdiction by assessee, it is not for the Department to pass an order u/s. 127 to transfer the file. 20. We have heard the issue relating to the jurisdiction. The main contention of the assessee's counsel before us is that the order passed by the ADIT (International Taxation)-II, Hyderabad u/s. 143(3) r.w.s. 144C of the Act is having no jurisdiction. It is an admitted fact that the assessee filed return of income for the A.Y. 2008-09 through e-filing on 7.7.2009. The relevant PAN of the assessee is AAECP6200E though it was mentioned by the Assessing Officer in his order as AADCP9954C. The PAN was issued by the DDIT (IT), Circle 1(1), New Delhi. The return was pr....
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....ver the assessee. To decide this issue we would like to take support from the judgement of jurisdictional High Court in the case of Vijayasanthi Investments Pvt. Ltd. vs. CCIT & Ors. (187 ITR 405) wherein held as under: "Under Sub-section (1) of section 127 of the Act, the Director-General or chief Commissioner or Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him to any other Assessing Officer or Assessing Officer also subordinate to him. Under subsection (2) of section 127, if there no such subordinate officer, officers of superior status are vested with this power. Under this section, therefore, giving a reasonable opportunity of being heard wherever it is possible to do so and recording of reasons for the transfer are essential. The Supreme Court has held in Ajantha Industries v. CBDT , already referred to, as follows (headnote) : "The requirement of recording reasons under section 127(1) of the Income-tax Act, 1961, for the transfer of a case from one Income-tax offic....
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....ons". No order containing any reasons was also communicated. The writ petition was allowed. In V.K. Steel Industries (P.) Ltd. v. Asst. CIT , the impugned order passed by the Chief Commissioner of Income-tax, Hyderabad, stated that the cases pertaining to the petitioner are transferred from the Assistant Commissioner, Circle 4(3), Hyderabad, to the Assistant Commissioner (Investigation Circle 1), Vishakhapatnam. The reason given in the order was said to be "to facilitate detailed and co-ordinated investigation". The order was preceded by a showcause notice which too stated the same reasons. However, when the writ petitioner was being heard, a copy of the reasons behind the order, as having been reduced to writing, was furnished. The Division Bench then observed (at p. 404) : "It is evident that these reasons were not communicated to the petitioner. We do not see any justification for withholding the reasons and communicating only the conclusion. Indeed the reasons for transfer must have also been stated in the show-cause notice so as to enable the person concerned to make an effective representation. Since that has not been done, the order of transfer is liable....
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....3) r.w.s. 144 of the Act. The ADIT (International Taxation)-II, Hyderabad cannot assume jurisdiction without valid transfer order u/s. 127 of the Act from the ADIT (International Taxation)-II, New Delhi. There should be due procedure of transfer to be followed. The power of transfer, vested in the authorities mentioned in section 127, is a quasi judicial one. Such a power has to be exercised in a fair and reasonable manner and not in an arbitrary and mechanical way. Passing a reasoned order is one of the requirement of fairness in action. Before transferring a case notice should be given by the transferring authority to the assessee. Such notice should contain reasons for the proposed transfer. The transferring authority should afford an opportunity of hearing and thereafter pass a speaking order considering the objections raised by the assessee, if any. Thereafter the order should be communicated by the transferring authority to the assessee disclosing the reasons for such transfer. Unless there is a proper and lawful order transferring the case from one Assessing Officer to another Assessing Officer by a competent authority, transfer of case cannot be effected. Where there was no....
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....93 TTJ 537) (Chennai) that the primary condition for assumption of jurisdiction for an assessment is that the Assessing Officer must initially have the jurisdiction to assess the income of the assessee in assessment or re-assessment. If the initial officer has no jurisdiction to frame an assessment on a person, then it is not open to such an officer to assume jurisdiction to reopen the assessment. Therefore, in order that the Assessing Officer should claim jurisdiction over the assessee, he must have specific authority or order by which the jurisdiction is conferred on him. In that event alone he could claim that he has jurisdiction to frame an assessment followed by the jurisdiction to proceed with reopening of assessment also. In the instant case, the Assessing Officer did not have the jurisdiction for the reason that the income returned was very low i.e., below ₹ 2 lakhs. Because the pre-condition for assumption of jurisdiction for reopening of assessment being the possession of jurisdiction to frame an assessment at the initial stage, which in the instant case, especially for the assessment years in question, not being vested with the concerned Assessing Officer, the assu....
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....cord to show that the person who has passed the impugned assessment order is having jurisdiction over this assessee when the assessee's present case is pending with the ADIT, New Delhi. The notification dated 28.9.2007 itself cannot confer jurisdiction to the Assessing Officer in Hyderabad, when return of income of the assessee was pending with the Assessing Officer, New Delhi. The learned DR taken a plea before us that no specific order is required from the CCIT from whose jurisdiction the case of the assessee is transferred to the jurisdiction of another CCIT in Hyderabad in view of notification dated 28.9.2007; the result of passing an order is with the prior proceedings, if any, made by the Assessing Officer who had no jurisdiction, is invalid or nullity in the eyes of law and it is only the Assessing Officer whose territorial jurisdiction so recognised as correct has the ultimate jurisdiction to pass either the assessment orders or reassessment orders. This is because the assessee viz., M/s. PVP Ventures Pvt. Ltd., has shifted its registered office to Chennai by merger with M/s. SSI Ltd., by an order of the Madras High Court vide order in Company Petition No. 69 and 90 of 2008....
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.... to the Assessing Officer the said company filed an application u/s 195(2) of the Act before the Assessing Officer at Hyderabad. Therefore, the Assessing Officer initiated proceedings u/s 163 and passed an order for the Assessment Years 2007-08 and 2008-09 together treating PVP Ventures Ltd., as an agent of Platex Ltd. He also issued notice u/s 148 for the Assessment Years 2007-08 and 2008-09. As the assessee did not comply with the notice issued, he completed the assessment u/s 144 r.w.s. 147 of the IT Act. He determined the total income at ₹ 5,30,31,148/- for the Assessment Year 2007-08 and ₹ 54,14,61,942/- for the Assessment Year 2008- 09. The assessee filed appeals contesting the orders passed u/s. 163 and the assessments made u/s 144 r.w.s. 147 of the Act. Since the issues involved are common, a consolidated order is being passed. 33. On appeal, the CIT(A) given a finding in relation to the order u/s. 163 that the order is not validly made, the assessment orders passed for the assessment years 2007-08 and 2008-09 are also not valid. However, the CIT(A) dealt with determination of the total income, in the following paragraphs: (a) The first question is with regard....
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....ny and that the incomes determined by the Assessing Officer cannot be sustained, the assessment orders passed under sec. 144 of the Act for the Assessment years 2007-08 & 2008-09 were annulled by him. 35. For the A.Y. 2007-08 the CIT(A) had given relief on various counts as enumerated above. However, the Revenue raised only one ground as ground No. 2 as under: "The CIT(A) is not correct in observing that PVP Ventures Pvt. Ltd., discharged its obligation of paying tax as per authorisation at the time of remittance itself and therefore, it cannot again be asked to pay tax on the amount remitted." 36. We have heard both the parties on this issue. Regarding the amount remitted by PVP Ventures (P) Ltd., is concerned, the said Company discharged its obligation of paying tax as per the authorization at the time of remittance itself. Therefore, it cannot again be asked to pay tax on the amount remitted. 36.1 These findings of the CIT(A) are not controverted by the Revenue authorities. Thus, it means that there is existence of valid order passed u/s. 192(2) of the Act by the Assessing Officer and in the presence of that order and remittance of the amount as per this order by t....
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....08. The first effective ground (ground No. (2) is as under: The CIT(A) is not correct in observing that PVP Ventures Pvt. Ltd., discharge its obligation of paying tax as per authorisation at the time of remittance itself and therefore, it cannot again be asked to pay tax on the amount remitted. 39. With regard to the above ground the CIT(A) observed that the amalgamated company PVP Ventures Pvt. Ltd., before its amalgamation issued convertible debentures in favour of Platex Ltd., a company registered in Mauritius with its office at 10, Frere Felix de Valois Street, Port Louis, Mauritius. According to the arrangement, the Platex Ltd., invests in the convertible debentures issued by PVP Ventures Pvt. Ltd. and the said debentures carry interest @ 14.5% per annum payable semi annually on 15th January and 15th June of each year. According to the terms and conditions of the issue of the dentures, the debentures shall automatically and mandatorily be converted after three years 11 months from the date of issue into the redeemable preference share capital. According to clause (9) of the scheme of issue of debentures, if any default occurs or is continuing to occur, the debentures are auto....
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....onresident is in receipt of any income, whether directly or indirectly; or". The said provision makes it very, clear that only when the Indian company remitted the amount the said company can be treated as agent. In the present situation the company PVP Ventures Ltd., did not remit the amount to the foreign company. Therefore, the said clause has no application to the facts of the case. It is not the case of the Assessing Officer that any other clause would apply to the facts of the case. In view of the above, the CIT(A) was of the view that the orders passed u/s. 163 of the IT Act are not proper and cannot be sustained. 43. Regarding the appeals filed by the assessee against the assessment orders passed under sec. 144 r.w.s. 147 of the Act for the assessment years 2007-08 and 2008-09, the CIT(A) observed that as he had held that the order under sec. 163 is not validly made, the assessment orders passed for the assessment years 2007-08 and 2008-09 are also not valid. However, he dealt with the determination of the total income as follows. The first question is with regard to the taxability of the gross interest or net interest. The assessee submitted in the written submission....
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....nt u/s. 163 he can consider only such amount received by the nonresident either from the Indian Company or through the Indian company. 47. With regard to the above grounds of appeal, the CIT(A) observed that the Assessing Officer also ought to have considered the fact that when he is taxing the agent under section 163 of the Act, he can consider only such amount received by the non-resident either from the Indian company or through the Indian company. The said amount of ₹ 49,54,68,397 was neither paid by the Indian company nor received by the foreign company. 48. There was waiver of interest by Platex Ltd., which is to be paid by PVP Ventures Ltd., and also there was no claim of payment of this interest by PVP Ventures Ltd. Being so, the assessee cannot be asked to deduct the tax on unpaid interest. It is not at all accrued to the Platex Ltd. The following judgements support the claim of the assessee. (a) CIT vs. Giri Raj Udyog Pvt. Ltd., 273 ITR 495 wherein held that when the assessee company having decided not to charge any interest on advances which were outstanding for more than 6 months before the end of the relevant accounting year and there being no agreed date for ....
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....ures Pvt. Ltd. which had remitted the amounts to Platex Limited was amalgamated with PVP Ventures Ltd., and hence PVP Ventures Ltd., is liable for all the tax matters relating to PVP Ventures Pvt. Ltd. (7) The CIT(A) ought not to have held that orders passed u/s. 163 of the IT Act are not proper and cannot be sustained. 51. First we will take up the issues relating to cancellation of order passed by the Assessing Officer u/s. 163 by placing reliance on the judgement of Supreme Court in the case of H.L. Sud, ITO vs. Tata Engineering & Locomotive Company Ltd., 71 ITR 457 (SC) (ground No. 3 in the grounds of appeal). 51.1 The learned DR submitted that the provisions of section 163 were invoked only to make a person responsible and give clarifications on an issue on which tax implications would be there and this is done because the other party (a non-resident) would not normally be available for enquiry. Therefore, in a case, there may be three or four parties who may be made representative assessees for a single assessee depending on transaction which covered three years at the time of making order u/s. 163, the Assessing Officer had proceeded and made a single order for the conven....
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....rt in the of CIT vs. Hukumchand Mohanlal (64 ITR 341) (MP). 51.4 We have heard both the parties and perused the material on record. This ground relating to passing of common order for three years u/s. 163 by the Assessing Officer would go to the root of the issue As seen from the facts of the case, the Assessing Officer passed only one order dated 13.10.2008 for all the three assessment years i.e., 2007-08, 2008-09 and 2009-10, though he is required to pass independent and separate order for each assessment year by issuing separate notice to the assessee. As the Assessing Officer failed to pass independent orders for each assessment year the CIT(A) is justified in annulling the order passed by the Assessing Officer u/s. 163 of the Act by placing reliance on the judgement of SC in the case of Tata Engineering & Locomotive Co. Ltd. (supra). We confirm the order of the CIT(A) on this count. As we have confirmed cancelling the order passed by the Assessing Officer u/s. 163 by the CIT(A), the other grounds raised by the Revenue in these two appeals become infructuous and liable to be dismissed. In the result, ITA Nos. 1161 and 1162/Hyd/2010 are dismissed. CO Nos. 96 & 97/Hyd/2010 - fo....